Notes of a VC @ Point Nine

Tag
marketplaces

I have spent some time playing with and reading about steemit. The vision of the media world it suggests we might be heading towards is fascinating.

In short, steemit is like reddit/medium on top of a blockchain with tokens integrated into the system to reward publishing and other activity on the platform. It is still a complicated system that I do not get entirely, but I think I get a sense of how the dynamics are.

Steemit rewards content contributions, both by publishers and curators ('likes/votes'), with tokens. It also makes the tokens useful in other ways. Holders of tokens can pass additional rewards to the authors they like, but they also get to enjoy more influence on the platform as well as benefit from the platform's success by getting a share of the tokens getting mined.

The tokens can be traded on exchanges against bitcoin, i.e. they represent real value, not just an internal currency of the platform. The supply of tokens is pre-defined for the future, which makes the users not worry about token inflation.

Creating a system that gets this mini-economy to balance is likely a tough job for the platform's operators. I think at some point we will see best practices for such communities emerge, but now it still seems like a learning process and that's why the system is somewhat clunky and hard to understand. Yet, most importantly, it seems to be working and growing and some content contributors make real money of it.

Below is a chart of the traffic of steamit taken from similarweb. The dynamics is clearly positive, and with 6m visits in May it is at a respectable size.

It is of course still small by the standards of reddit (1bn+ visits in May) or medium (close to 100m). It is also possible that the increase in interest for steemit and other token-based services in May was driven by the strong crazy price increases in crypto in that month and that it will subside in the coming months. The price of steem (steemit's token) went up by ca. 20x recently, which by no means was an exception in the market. In any case, the activity on the platform is signifcant.

What I find most fascinating about steemit is that it suggests a direction for development of the media landscape in the future. Imagine a world where journalists are truly independent. Where they can create and publish their work, get audience and make a living, without the need to be part of a larger publishing platform or a magazine.

One can take it a step further. Imagine similar rules applied to music. Something like a distributed soundcloud. Where artists can publish and make a living of it. Moreover, the tokens being tradeable, how about a music band issuing a pre-sale of tokens entitling the users to listening to their not-yet-existing album once it has been released? I think many bands would prefer this than dealing with music labels. Or independent film makers pre-selling (tradeable) tokens enabling one to view their films in advance of a public release once they have been made? Amazing!

I am still learning about steem and other platforms working on applying the blockchain paradigm to the web as we know it and reinventing it. It is still early, but it feels like strong new concepts are emerging. If you want to help me find more practical ways how blockchain technologies can impact the world, or want to add something to or comment my logic above, please do so, I will be thankful for additional insights.

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Two months ago Christoph attempted to answer the question on what it takes to raise money in SaaS in 2016. The result was a table outlining ballpark indicators across startup development stages that need to be met to get to the next financing stage in SaaS, i.e. from Seed to A, from A to B, etc.

It seems the SaaS fundraising napkin, as Christoph called it, was very helpful to SaaS founders out there. The feedback from the community was very good and many interesting discussions evolved.

Given that marketplaces are also a strong focus area for us, we immediately thought that it would be great to have a fundraising napkin for marketplaces too. After thinking about it for a bit, we came to the conclusion that this might be a bit more tricky, due to marketplaces being a less homogenous group than SaaS startups. Here are a number of areas in which the differences are visible:

Geography - SaaS startups tend to be global from day one, frequently go after the US market and raise funding from the same group of international SaaS investors. Marketplaces, on the other hand, are frequently multi-local, scale country by country - and have to raise funds, especially in the early stages, from local investors - who might vary in standards.

B2B vs B2C - when we talk about SaaS we typically talk about startups selling software to businesses. In contrast, marketplaces can be B2B, B2C, B2B2C..

Nevertheless, we had a shot at it. We teamed up with the great folks at Version One to make it happen - they focus a lot on marketplaces and their input has been very valuable. Below, you can find the result of our work. We hope you find it helpful and are eagerly looking forward to any feedback you might have!

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Real estate is a massive market. PWC estimates the global stock of institutional real estate at tens of trillions USD and growing. Add to that the lower quality stock and the market size probably is well over 100 trillions. Thus, real estate certainly is one of the biggest asset classes out there, if not the biggest one. As software is eating the world, it is also impacting, in many ways, the world of real estate. And if an industry that is trillions dollars heavy gets impacted by the Internet, things ought to be interesting.

Tech in real estate is not exactly a new thing. Bringing real estate listings from newspapers to online is a process that started in late 90’s. The software that is meant to make the work of real estate agents and managers more efficient has been around for some years now and is continually evolving. These general trends have been receiving large amounts of attention and investment.

What we have been witnessing in the real estate space so far was mostly about tech and Internet improving the efficiency of old established processes, or as CB Insights put it, reshaping how real estate is bought, sold and managed. In our portfolio, a good example of a startup addressing this trend is Propertybase, a cloud based CRM solution for the real estate industry, in which Christoph made an investment as a business angel.

But there are ways in which the Internet impacts the real estate market far beyond pure efficiency improvements. I find the areas in which Internet solutions change the patterns of how real estate is being used most interesting. I think that they have the potential to fundamentally change parts of the real estate market and thus open up exciting opportunities for value creation for startups. Below, I will dive into a few examples.

So far, the most pronounced, although indirect, impact of the Internet on the ‘usage patterns’ in the real estate market was imposed by the rise of e-commerce. As sales of goods and services shift to online, the demand for offline space to sell these goods goes down. The structure of the remaining demand changes. Large discount outlets located just outside of cities suffer and prices for such property go down. The remaining demand tends to focus on the more accessible locations and new formats for commercial real estate usage are popping up.

The impact of e-commerce on commercial real estate seems so pronounced that serious financial institutions run studies about this phenomenon (here is one by Aviva).

Probably the most prominent direct example of how the Internet changed how we use real estate is Airbnb, the well known company that enables everyone with a spare room to compete with hotels. It represents, already now, the biggest ‘hotel chain’ in the world, without owning any real estate. And it is truly global and democratic, as it offers something for ‘everyone everywhere’, from the cheap rooms way into the luxury category and business travel. It has totally changed the way we think about room rentals.

Another one are co-working spaces, like wework or the Berlin based Factory, which enable companies to have a spot in a fully equipped office, available right away, without the long-term commitments needed for a typical lease. Co-working spaces use the Internet to acquire customers when spots become available and to use their spaces more efficiently. The co-working space category is growing very quickly - driven by the trend towards more flexible work, but also by the availability and maturing of technologies needed to put together such offerings.

Interestingly, data shows a significant decline in the average length of lease for commercial real estate across all categories. It is hard to say whether the Internet has much to do with this, but I would think so.

No wonder that startups jump on this trend for short(er) term commercial real estate demand and try to fill it. Startups like Deskbookers (a Point Nine portfolio company), PopupImmo or The Store Front are all very good examples.

If one tries to categorize the above into trends, it seems that there are four main ones:

Buying and selling real estate has shifted a lot to online platforms and will continue to do so. This makes the market more liquid and efficient.

Utilisation - technology helps make the usage and management of buildings easier and more efficient - and thus cheaper.

We now do online more and more of the things that we were doing offline before. Be it discount shopping or dealing with a bank. This reduces the demand for commercial real estate needed for these activities and changes the demand structure for real estate in the respective areas.

Booking (as in the case of Airbnb or booking.com) - the Internet enables real estate inventory to be offered to users in real time. This allows for better utilization of capacity and yield management, and thus, counter-intuitively, might drive more (and better) capacity into the market, as real estate projects that might not have been profitable before can be made profitable now.

We already made some investments in these areas and here are some recent examples from our portfolio.

I believe that the trends outlined above will result in changes of real estate prices and definitely are something for people buying and selling real estate to watch. More importantly for me, they will continue to offer tremendous opportunities for startups. We will keep on watching this space closely and hope to make more investments in real estate related startups, preferably in SaaS and marketplace businesses trying to address these big shifts that are happening.

I am sure the above list of four trends is not perfect and the trends might be overlapping or I might be missing something - please feel free to comment or add to it.

Many thanks to the Point Nine team for reviewing the early versions of this post.

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The start of a new year encourages us to look back at what happened and think about what is coming. Having come across this post by Fred Wilson of USV I thought a similar analysis of the development of Point Nine’s portfolio could be an interesting exercise to provide some long term perspective and maybe deliver some interesting insights.

A big part of our investment thesis at Point Nine is to invest in SaaS and marketplaces startups. The chart below illustrates this showing the development of our portfolio, now across three funds, since 2010. It shows, for every year, the number of active companies in our portfolio, split in three categories: SaaS, marketplaces and other. Admittedly, in some cases it was hard to clearly categorise the companies. I tried nevertheless and the result is that currently we have investments in just over 60 companies in our three funds, roughly half of them are SaaS companies, ca. ⅓ are marketplaces and some 15% are outside of the two main categories.

What is harder to read on the above chart is how the dynamics looks like on a year-by-year basis. The next chart (below) does a better job at showing this. What it shows is, among other things, that in the last years we have been consistently making 10 or a few more investments per year and that 2015 was our most active year ever, with 17 new investments (I also included 2 that have not entirely closed yet, so that they will be moved to 2016, if we repeat the analysis in the future).

Interestingly, this growth in the number of new investments in 2015 has primarily been driven by a higher number of new marketplace investments than in the previous years and it did feel like last year we spent more time thinking about marketplaces than previously. The fact that we organized our first marketplaces meetup last year also illustrates this well.

Interesting is also what these charts do not show. Firstly, the category ‘other’ is not really revealing, so I will explain it in a bit more detail. Mainly, it accounts for categories such as Adtech, E-commerce and Mobile Consumer. We do have interest in these categories, and have made investments in them in the past, but they have not been at the core of our activities. There are excellent companies and entrepreneurs operating in these areas, yet we simply chose to put our systematic efforts into SaaS and marketplaces and treat the other business verticals more opportunistically.

Furthermore, what the charts do not show at all is the split of our investments across industries. We are explicitly very focused on SaaSand marketplaces as very powerful Internet-based business models and we generally do not prioritize specific industries. We believe in the power of these two business models to transform many sectors of the global economy and look for opportunities across them.

I believe that our focus on SaaS and marketplaces going forward will remain similar to what it has been in the past and I do not expect major changes to this trend. However, recently our efforts have been focused in some areas more than in others. Developer tools, education, financial technology (incl. bitcoin) and health definitely are among the key industries and themes for us right now. It probably is already visible in the numbers - but this is something for another blog post. Yet, although not yet explicit, I expect our industry focus to strengthen in 2016 and it will be interesting to see whether we really go that route and which sectors will turn out most interesting to us.

Many thanks to Savina for helping me prepare the figures for the charts and to the Point Nine team for feedback.

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I originally posted the below text regarding internationalisation of startups on my old blog, pawel.ch, in March of 2014. Having just come across this story about how Uber is losing vs. local competitors in some countries reminded me about the characteristics of multi-local marketplaces and how tricky their internationalisation can be. If you are interested in this topic, I hope you will enjoy this blog post or maybe even find it useful, especially if you did not read it back when I posted it.

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At Point Nine, we spend a lot of time thinking about how startups internationalise. As we are mostly active in Europe and given it is hard to build a really large company only addressing one of the European countries, most of our portfolio companies face the challenges of internationalisation at some point in their lives.

My current thinking is that as far as internationalisation is concerned, there are two types of startups: global and local/multi-local startups. It is very important for founders to understand which category their company is in, as it will have significant consequences for how the internationalisation process will evolve and how it will impact the development of the company.

Global startups

Global startups address an international audience from day one. They will typically launch their product in English and might add additional localised versions later. Many of our SaaS startups, even those based in Europe, are global startups. For example, Contentful, infogr.am or Algolia all fit this definition of a global startup. Being a global startup has following consequences:

- It is “easy” to go international. You sell to international audience from day one.

- Sooner or later you will have strong direct competitors, so better get funded and move fast. If the opportunity is significant and it is global, someone else out there will notice and try to exploit it.

- Especially in software, if you are global, you have to be strong in the US market, the biggest software market in the world. If you lose the US, it can be hard for you outside of it.

- First you need to master the English / US version of your product and sales and marketing. Local language versions or localised sales might be necessary at later stages of the company to scale it really big, but not to get to the first significant scale.

- The financial outcome of your startup journey will probably be binary - either you will create a very significant company or you will be crushed by competition or die of other problems.

Local and multi-local startups

(Multi-)local startups are different. They typically start with a product offering tailored to one country and after gaining some experience in the initial market go to another market and another, in a country by country fashion. Examples from our portfolio would include Delivery Hero, Kreditech or Docplanner.

- (Multi-)local startups are “hard” to internationalise. Every new market is a new logistical challenge. This can be especially hard in ecommerce, but marketplaces are not easy either. Figuring out a fast and efficient way to rollout new markets is key.

- Competition in the local markets will vary between zero and moderate, rarely will it be very sophisticated, aggressive or well funded.

- As you gain experience in a multitude of markets, it will be hard to compete with you.

- US is not a must. More importantly, US competitors will typically not be a threat. US competitors who start with a local business model in the US, frequently do not internationalize at all or go only into a few countries, do it late or are not good at it (see GrubHub Seamless, Zocdoc or Amazon).

- It is hard to get to a really big scale as it will typically require winning a large number of countries or winning in the biggest, most competitive countries (like Germany, UK or France).

- The outcome does not have to be binary. You can make it in one or a few small and mid-sized countries, fail in bigger markets and you can still have a decent exit.

Of course, the world is not as black-and-white as painted above. One can imagine that a company launches a global product offering following some success locally. Or that a company is not easy to categorise, like in the case of Spotify which goes country by country, but is building a global brand.

While certainly not perfect, I like this way of looking at the internationalisation of startups. If you have any thoughts or experiences that support, contradict or simply add to the above, I would be thankful to read about them in the comments below.

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KPI dashboards are an important tool for startups to capture the status and development of their businesses. They can be used internally, to see the effects of business measures taken, set and communicate priorities and goals. They are also very helpful for external communication, primarily with investors.

However, building an appropriate dashboard that captures the right things is by no means easy and many founders, especially those doing it for the first time, have challenges developing one. To address that need, Christoph developed a KPI dashboard for SaaS startups some time back and it turned out to be very helpful for, and popular among, SaaS founders.

As noted by Angela, marketplaces come in different shapes and sizes, but they do tend to share the buyer/seller logic and transaction orientation. While this is very true, the business models of some marketplaces fit this logic less perfectly than others. For example, some marketplaces do not revolve around selling products, but enable service providers to reach their customers and enable them to book services, as is the case for OpenTable or our portfolio companies DocPlanner and StyleSeat. Such marketplaces tend to include a B2B/SaaS component and vary in pricing models, so their dashboards require some customising and frequently expanding vs what Angela's model would suggest.

With the above in mind, I thought it could be useful to show an example of a KPI sheet used by a services marketplace startup. Below I attach a screenshot of the sheet as used by Docplanner (thanks Mariusz!). You will notice that the logic and key metrics of Docplanner's sheet are different in a number of places from what Angela suggested. This is primarily driven by Docplanner's business model having different value drivers than this of a more typical buy/sell marketplace. Let's go through the key differences by segment.

Overall Marketplace Metrics

GMV/Take Rate/Revenues are the topline figures in Angela's marketplace model. For Docplanner, I would argue that the GMV metric is not so essential tactically to justify tracking and optimising for. It is a very big number and it does illustrate the economic relevance of the platform, yet Docplanner's business model does not operate on a %-cut of revenue basis. What is critical for Docplanner is how efficient the platform is in filling in the time slots available on each doctor's calendar. That is why the number of bookings made on the platform as well as different statistics around it are the key overall metrics of the marketplace. Some stats around bookings that Docplanner is measuring are:

# of bookings made by patients

# of bookings made by doctors and their co-workers directly in the system

Average # of bookings per calendar

Distribution of bookings across calendars

Fill rates

Seller/Supplier Metrics (Doctors)

Most of the metrics proposed by Angela in this segment will be relevant for Docplanner too and they indeed track most of them. However, in contrast to most trading marketplaces, there is real sales effort involved in getting doctors on the platform and activating them, so that Docplanner tracks a number of metrics associated with that. They also track a number of more typical SaaS metrics, since a subscription to the platform is the core of Docplanner's business model. Overall, additional seller metrics include:

# of sales reps

Average sales rep productivity

Resulting average CAC

MRR

Supplier / doctor churn

Buyer Metrics (Patients)

Docplanner puts more emphasis than is suggested by Angela's KPI sheet on traffic metrics and focuses more on the # of bookings and conversion rates to bookings rather than average $$$ amounts per buyer/patient. Also, Docplanner is very serious about the activity of the patient community, which is reflected in the tracking of the number of comments left by patients on the platform.

It is worth adding that Docplanner is tracking all of the above on a per country basis (they are operational in multiple countries) as well as on a consolidated basis.

Check it out and please let me know should you have questions or suggestions on what could be improved in the sheet.

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SaaS companies are the biggest segment within Point Nine's portfolio and many people perceive us as an investor strongly focused on SaaS, but with a relatively international footprint. While this is entirely true, there is one other area that we focus on a lot, and we call it 'marketplaces'. Admittedly, it is hard to define precisely what we mean by 'marketplaces'. The definition can range from a very transactional one, where a marketplace is a site that allows users to conduct monetary transactions with one another, or a broader one, famously formulated by Union Square Ventures' investment thesis which is defined as looking to invest in 'Large networks of engaged users, differentiated through user experience, and defensible through network effects'. The definition we like to use is a broad one and we are mostly attracted to marketplace businesses because at scale they can become extremely defensible and profitable due to the network effects they create.

Importantly, marketplaces are not a new or recent discovery for us. In the past, we invested in a significant number of marketplace startups, such as Bitbond, Brainly, Couchsurfing, DaWanda, Delivery Hero, Docplanner, niania.pl, Styleseat or Xeneta, to name just a few. Interestingly, some of the marketplace companies we invested in have a strong SaaS component so that the SaaS tool becomes an important part of the value proposition - Docplanner or Styleseat are examples of that. Inversely, some of our SaaS companies build a valuable network or data asset over time, which adds a marketplace aspect to what they do. Riskmethods or Xeneta would be great examples.

The vast majority of our marketplace investments are European and we expect it to stay this way. Marketplaces are very frequently a country-by-country conquest and we believe that Europe is best positioned to create such companies. Also, marketplaces frequently have a local element and we believe that Europe is where we can be most helpful with that.

For the last three years we've been organising SaaS portfolio meet-ups and we recently came up with the idea to extend the format and do an internal event for our marketplace companies. We were a little bit afraid that the value-add of such an event might be more limited than it is in the case of a focused SaaS event. We believe that the challenges faced by SaaS companies tend to be more similar across startups than those at marketplace startups which are more diverse. In the end we decided to try it out and last week we organised a meet-up for our portfolio companies and friends around the topic of marketplaces.

We had 7 presentations by company founders and CxOs of (in order of appearance on stage): Quandoo, Momox, StarOfService, Bitbond, Lovoo, Kitchen Stories and Brainly. There were two panel discussions - one with two focused marketplace investors (thanks Fabrice Grinda and Fred Destin for joining us!) and one with marketplace companies which have made significant progress expanding internationally (Airbnb, Docplanner and Helpling). We also had Huw Lloyd of Torch Partners present about the valuation and other financial aspects of marketplace companies, as well as Florian Heinemann from ProjectA who held a great presentation about marketing for marketplace companies.

We are very happy with the result. We had the impression that the participants were able learn a lot from each other and from the presentations by the outstanding speakers. We feel encouraged to do another such event on marketplaces next year. Maybe at some point we will see so much interesting content to share and stories to tell about marketplaces within our portfolio and network that we will organise a larger two-day event like in the case of our SaaS meetup last year in San Francisco.

You can expect us to stay committed to the marketplace space and to be making more marketplace investments in the future. Fabrice Grinda said on stage that 'marketplaces are a 50 year trend that will affect all industries' - and we fully subscribe to that.

We would like to thank all the 70 or so participants and speakers for joining us at the event last week and coming from all around Europe and sometimes beyond to be with us in Berlin. We hope it was worth it for you. Also, many thanks to Axel Springer Plug & Play for hosting us at the pretty amazing location in the 19th floor of their headquarters.

Have a look at the pictures in the top of this post to get a feel for how the event was like.